Gold Reclaiming ground on Middle East concerns

Gold Reclaiming ground on Middle East concerns

Gold reclaiming ground this morning near record-highs on concerns that the Middle East conflict could spread to other regions, and short-term support from a falling U.S. dollar. The bullion had dipped Tuesday after Federal Reserve Chairman Jerome Powell indicated it was unlikely that the central bank will cut interest rates anytime soon.

Recent inflation reports topped investors’ forecasts, rather than declining toward the Fed’s 2% goal. The dollar climbed and Treasury yields soared to 2024 highs on the remarks. Gains in the dollar and Treasury yields are typically bearish for gold, making the yellow metal a less attractive alternate investment. 

“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said at a central bank forum. Following his remarks, most investors aren’t anticipating rate cuts until September – a change from previous predictions of a cut this summer. High interest rates are considered bearish for gold, while lower ones are bullish.

Front-month gold futures gained 1% Tuesday to settle at $2,407.80 an ounce on Comex, and the most-active June contract is up 1.4% so far this week. Bullion rose 8.9% in March – the biggest monthly rise in more than three years – after dropping 0.6% in February and declining 0.2% in January. The metal rose 13% in 2023. The June contract is currently up $1.10 (+0.05%) an ounce to $2408.90 and the DG spot price is $2394.60.

Gold, which has climbed to a series of record highs in recent days amid haven demand related to the conflicts in the Middle East and Ukraine, also took a breather as Israel weighed its response to drone strikes from Iran over the weekend which roiled markets. The attack triggered a flight to safety by investors, including in gold. 

About 98.4% of the investors tracked by the CME FedWatch Tool are betting that the Fed will keep rates unchanged in May, while 1.6% expect a 25 basis point cut. The central bank has raised interest rates by 5.25 percentage points since March 2022 in an effort to cut inflation, but kept rates unchanged at 5.25% to 5.50% at its meeting last month. Almost 80% of investors also expect the Fed to hold rates at current levels in June, and more than half anticipate a rates holding steady in July. Most investors are now anticipating a rate cut in September. 

Last week, U.S. consumer price index data topped forecasts for March. So-called core CPI – which excludes volatile food and energy costs – rose 0.4% last month from February, while the year-on-year rate was unchanged at 3.8%, according to U.S. government data. Wholesale prices also heated up again last month, according to producer price index data released separately. 

The Fed closely watches both labor market conditions and inflation when determining monetary policy.  

In upcoming economic news, the Fed will release its Beige Book economic report from its 12 regional reports on Wednesday afternoon, and Cleveland Fed President Loretta Mester and Fed Governor Michelle Bowman are scheduled to speak. U.S. weekly initial jobless claims come out Thursday, and a series of Fed officials are set to speak Thursday and Friday. 

Front-month silver futures fell 1.2% Tuesday to settle at $28.38 an ounce on Comex, though the May contract advanced 0.2% in the first two days of the week. Silver gained 8.9% in March after losing 1.2% in February and falling 3.8% in January. It ticked up 0.2% in 2023. The May contract is currently up $0.409 (+1.44%) an ounce to $28.785 and the DG spot price is $28.79.

Spot palladium decreased 1.9% Tuesday to $1,026.50 an ounce and is down 4.1% so far this week. Palladium advanced 7.7% last month after falling 4.6% in February and tumbling 11% in January. Palladium plummeted 38% last year. The current DG spot price is up $13.80 an ounce to $1052.00.

Spot platinum fell 0.7% Tuesday to $967.80 an ounce and is down 2.4% in the first two days of the week. Platinum rose 3.3% last month after decreasing 4.9% in February and falling 8% in January. Platinum dropped 6.8% in 2023. The DG spot price is currently down $7.10 an ounce to $962.10.

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